G.R. No. 222482, June 2, 2020
PRINCESS RACHEL DEVELOPMENT CORPORATION AND BORACAY ENCLAVE CORPORATION, PETITIONERS, V. HILL VIEW MARKETING CORPORATION, STEFANIE DORNAU AND ROBERT DORNAU, RESPONDENTS.

FACTS

Petitioner Princess Rachel Development Corporation (petitioner) is a registered landowner of properties in Aklan. Respondent Hillview Marketing Corporation (respondent Hillview), a developer, built the “Alargo Residence” subdivision project. A relocation survey in 2007 revealed that respondent Hillview’s construction encroached upon 2,783 square meters of petitioner’s properties. Petitioner, upon discovery, sent demands to vacate and, when unheeded, filed a complaint. The Regional Trial Court (RTC) found respondent Hillview liable as a builder in bad faith, but the Court of Appeals (CA) reversed, applying the presumption of good faith in favor of the builder. The CA noted petitioner’s alleged inactions but did not make a categorical finding on whether petitioner was a landowner in good faith or bad faith.

ISSUE

Whether the good faith or bad faith of the builder (respondent Hillview) and the landowner (petitioner) should be determined based on the peculiar circumstances of the case, rather than a strict application of the constructive notice rule.

RULING

Yes. The concurring opinion emphasizes that the determination of good faith or bad faith for both builder and landowner must be based on the peculiar circumstances of the case.
1. Petitioner is a landowner in good faith. As a registered owner, it is entitled to protection under the Torrens system. It showed sufficient justification for not objecting to the construction earlier (its office was in Metro Manila while the property was in Aklan, and the encroachment was only discovered in 2007). Upon discovery, it acted diligently by making demands and filing a complaint. Under Article 453 of the Civil Code, bad faith of a landowner requires that the building was done with his knowledge and without opposition; here, petitioner opposed upon knowledge.
2. Respondent Hillview is a builder in bad faith. The essence of good faith is an honest belief in the validity of one’s right. The encroachment spanned 2,783 square meters, which was more than 50% of the 5,100-square-meter lot respondent Hillview actually owned. This substantial increase was too great to be undiscovered by a prudent developer. Respondent Hillview’s conduct, including avoiding court orders for survey reports and submitting a plan without an actual survey, indicates awareness of the encroachment.
3. The constructive notice rule under the Property Registration Decree (PD 1529) should not be applied strictly and indiscriminately. A factual circumstances approach, as used in jurisprudence (e.g., Co Tao v. Chico), is more equitable. Good faith of a builder can be recognized despite encroachment on a registered lot if the builder relied in good faith on titles or representations, without negligence. Blind application of the constructive notice rule could lead to unjust results, especially where titles may contain errors or where there are honest mistakes by builders.